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Game Rentals Robust for Rentailers

21 Aug, 2003 By: Melinda Saccone

In the past few years rentailers have begun to focus more heavily on game rentals and sales as they pursue aggressive strategies to diversify their product lines.

The game product category has developed as a robust source of revenue for rentailers. Game revenue as a percentage of gross revenue in the top 50 rental stores has nearly doubled in the past few years.

According to Video Store Magazine market research, game revenue has jumped from 5.8 percent of gross revenue in the top 50 rentail outlets in 1998 to 8 percent at the end of 2002. Video Store Magazine market research estimates that by year's end, game revenue will account for more than 10 percent of the top-tier rentailers' gross revenue.

At the end of 2002, Video Store Magazine market research estimates the game rental market generated $765 million. Of that, an estimated 97 percent came from rental specialty stores.

With nearly a billion dollars on the table, many retailers plan to take measures to beef up their game offerings in 2003. According to a study conducted by Video Store Magazine market research at the end of 2002, 72 percent of the top 50 rentailers planned to increase their game rental inventory in 2003, while 31 percent planned to increase the amount of new-release games they carried for sale.

At mid-year 2003, Video Store Magazine market research pegged U.S. consumer spending on game rentals at $418.5 million, down 4.9 percent from spending in the comparable six-month period in 2002. Still, optimism abounds for many retailers as industry pundits expect hardware pricing to fall in time for the holiday season.

If household penetration gets this expected fourth-quarter boost from declining hardware prices, and suppliers pump new product into the pipeline, market conditions will be ripe for game rental and sales growth. According to NPD Funworld, by year's end next-generation video game penetration is expected to near 50 percent of U.S. households, leaving plenty of opportunity for rentailers to capture those who want to try before they buy.

Meanwhile, the top three public chains have all pumped up their presence in the game market.

Video Store Magazine market research estimates that more than half of all game rentals in the first half of 2003 were generated in a Hollywood Video or Blockbuster store. Both retailers cited game revenue as one of the major contributing factors to increases in their second-quarter earnings.

Hollywood Entertainment Corp., which has been the most aggressive in its expansion into the game rental market, cited game revenue as a major contributor to the 11 percent increase in same-store sales in the second quarter of this year.

Hollywood was the first to market the “store within a store” concept with their Game Crazy departments that rent, sell and trade video games.

At the end of July, the No. 2 rentailer boasted 483 Game Crazy departments, roughly 26 percent penetration in Hollywood outlets. By the end of the year, Hollywood plans to add an additional 90 Game Crazy stores to their outfit, which would put Game Crazy departments in 29 percent of their outlets.

Video Store Magazine market research estimates that at mid-year Hollywood Entertainment's Game Crazy departments generated 20.6 percent of all game rentals, up from 19.1 percent at the end of 2002.

Slightly more than 10 percent of Hollywood's total rental revenue came from game rentals, according to Video Store Magazine market research estimates.

No successful business strategy goes unnoticed. Blockbuster and Movie Gallery have plans for similar models in their stores.

Blockbuster, by its sheer size (6,244 domestic outlets), took top honors in game rental market share. At mid-year, Video Store Magazine market research estimated that 37 percent of all domestic game rentals were generated in Blockbuster video stores.

Blockbuster also reported positive earnings growth in game rentals for the second quarter and is planning to increase its presence in the game market.

The chain is rolling out a game subscription plan and, like Hollywood, also introduced a video game “store within a store” concept in late April. Fourteen stores in the Southeastern United States are equipped with the concept, and 150 additional U.S. stores are planned.

Movie Gallery, the nation's No. 3 rental chain, is jumping into the game with plans to roll out dedicated game sections in their higher-volume stores. Movie Gallery, which has been testing the concept in four of its stores, plans to launch six to eight more over the holiday season.

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